Federal Regs Threaten State WC System

Among the latest federal moves against workers' comp:

One area of concern is that of medical privacy and federal Department of Health and Human Services regulations. Although these rules do not directly cover workers comp, they do expressly require "covered entities" (for example, physicians, hospitals, health plans, and other medical providers) to disclose to employers and insurers in workers comp cases only the amount of medical information deemed by the provider to be "minimally necessary."

Aside from the "minimum necessary" standard effectively requiring medical providers to determine legal relevancy of medical information–a function they are not capable of fulfilling–the standard would establish, for the first time, a federal workers' comp rule. The result: dual forums for adjudicating disclosure disputes. This would complicate administration and settlements, and the federal forum ultimately would trump state law determinations.

Final HHS rules are due any time; compliance is set for April 14, 2003.

Another point of incursion against the system comes from activity aimed at setting protections against ergonomic-related injury.

In April 2001, Congress vacated the Clinton Administrations ergonomics rules that ignored the express statutory prohibition against interfering with workers comp. That ergonomics regulation included a compensation mandate, under which workers diagnosed with qualifying musculoskeletal disorders (for whom a health care practitioner has recommended removal from the workplace) would have been guaranteed at least 90 days at full wages and benefits, along with medical evaluation benefits.

This would have taken the U.S. Occupational Safety and Health Administration beyond its authority (injury prevention) into an area Congress expressly reserved for the states (injury compensation). This parallel federal compensation program would have undermined the exclusive remedy doctrine. It also would have conflicted substantially with administration of the workers comp system.

Although the Bush Administration does not plan to initiate ergonomics rulemaking, the threat of a new regulatory compensation mandate remains with S. 2184, introduced by U.S. Sen. John Breaux, D-La., and passed this spring out of committee. S. 2184 would require that a new rule be written within two years.

Also threatening the system is the Energy Employees Occupational Disease Entitlement Program.

Last year, Congress enacted its first occupational disease entitlement program since the Black Lung Act of 1969. The Energy Employees Occupational Illness and Compensation Program Act program is federally funded, providing full medical benefits and a $150,000 lump sum to federal employees and federal contractor employees (or their survivors) for diseases related to employment in the nations nuclear weapons production program. The federal payment supplements any benefits received under workers compensation.

Although Congress did not intend to expressly override state workers comp laws, this is the effect because the act empowers federal facilitation of state benefit payments by authorizing the secretary of energy to enter into agreements with states and with federal contractors to require those contractors to pay workers comp claims.

Fortunately, absent conforming state legislation, state officials do not have authority to override, via agreement with a federal agency, the substantive law of a state.

There are Fifth Amendment impediments to requiring employers (or their insurers) to pay benefits not previously required under state law, and mandating employers to pay state claims that effectively deprive employers (or their insurers) of procedural rights or state law defenses. Final regulations are pending.

Finally, there is the Medicare Secondary Payer issue.

Congress enacted the Medicare Secondary Payer program in 1981 to prevent Medicare from being a primary payer where other payment programs, including workers comp, are deemed primary payers.

Notwithstanding its issuance of enforcement guidance a year ago, Medicares more aggressive enforcement during the past few years has complicated settlements, exposing insurers to inconsistent enforcement among Medicare regions, delaying Medicares approval of workers compensation settlements, and raising settlement costs.

Meanwhile, workers and their insurers or employers are still exposed to future liability for Medicare payments. Medicares unfamiliarity with workers comp has compounded difficulties. Its overly broad interpretation of its financial interests has clogged workers comp settlement processes and involved the federal government more deeply in the operations of the state-based system.

By the way, the strong endorsement of continued state regulation of workers comp benefit delivery systems by my organization, the American Insurance Association, is not inconsistent with support for optional federal charter legislation for insurers. Such legislation would not create or regulate state insurance reparations laws, such as auto or workers comp laws. Rather, the purpose of federal chartering is to eliminate state regulatory impediments to product pricing and design (to the extent that design is not mandated by state law).

The workers' comp benefit delivery system would continue to be regulated by the states. Benefit and design decisions still would be made by state legislatures, who are more sensitive to local economies.

A state-based workers comp system fosters innovations to address evolving benefit delivery system problems. In view of Congress checkered record, dispersed power is the only protection against attempts to impose ill-conceived compensation programs at enormous costs to employers and insurers.

Bruce C. Wood is assistant general counsel for the American Insurance Association in Washington, D.C.

Reproduced from National Underwriter Property & Casualty/Risk & Benefits Management Edition, August 19, 2002. Copyright 2002 by The National Underwriter Company in the serial publication. All rights reserved.Copyright in this article as an independent work may be held by the author.